The Kenyan insurance market regulator has opened investigations into the involvement of two Britam directors in activities that led to the government takeover of Bramer Banking Corporation (BBCL) of Mauritius.
The Insurance Regulatory Authority (IRA) said it had requested information from its Mauritian counterpart on the role of BBCL directors Dawood Rawat and Benson Wairegi in the Sh63.7 billion fraudulent scheme that is alleged to have felled the bank.
Sammy Makove, the IRA chief executive, said the outcome of the investigations may force Rawat, Britam’s largest owner, to sell his stake in the Kenyan firm. Mr Makove said that if Mr Rawat is linked to the Ponzi scheme, the authority would, as required by law, disqualify him from holding an office in Britam.
“He will also cease to have a managing control or significant ownership or beneficial interest in the company,” he said.
That means Mr Rawat, who is the single-largest investor in the NSE-listed Britam with a 20.3 per cent stake, could be forced to divest from Britam and lose his directorship if linked to BBCL’s collapse.
Mr Makove said the IRA would use the responses from Mauritian authorities to determine the involvement of BBCL’s directors in the scam before taking action.
Kenya’s insurance law disqualifies a person who has been found culpable of financial crimes from having a significant ownership in an insurance company.
Heads of insurance firms, irrespective of their shareholding, can also be declared unfit to hold office and forced out if found to have engaged in unethical business practices — a provision that could also affect Mr Wairegi, Britam’s managing director, who serves on the board of the troubled Mauritian bank.
Mr Rawat joined Britam’s board in late 2013, alongside his nephew, Moussa Rawat, as part of the changes in directorships across his conglomerate.
Britam has since issued a statement saying that while the two entities share directorships, its operations cannot be affected by the revocation of the Mauritian bank’s operating licence.
Mr Makove said a decision on the suitability of persons mentioned in the scandal (Mr Rawat and Mr Wairegi) to serve on Britam’s board will be taken “upon conclusion of the investigations”.
He, however, maintained that Britam, as a legal entity, is not under investigation.
The Bank of Mauritius revoked BBCL’s licence on April 2, having been found to be running a Ponzi scheme.
BBCL is part of Mr Rawat’s Seaton Investment conglomerate and has in the past two weeks had to deal with panicky savers who rushed to its banking halls to withdraw their money immediately the state announced plans to take over its operations
A Ponzi scheme is a financial scheme that promises investors unrealistic returns from cash paid in by new members, necessitating an endless recruitment drive that eventually proves unsustainable.
BBCL resumed operations after the Bank of Mauritius granted it a new licence to provide restricted banking services, including cash withdrawals capped at Sh128,000 per day.
The authorities have since appointed two PricewaterhouseCoopers officials as conservators of British American Insurance Co (Mtius) (BAI), another subsidiary of Seaton, signalling that the business could be exposed to the troubled bank.
The IRA’s investigations could have unprecedented consequences in Kenya’s insurance industry, adding to Mr Rawat’s headache.
“We have since communicated with the Mauritian insurance regulator for more details,” Mr Makove said.
“We are both members of the International Association of Insurance Supervisors and within this framework, they (the Mauritius regulators) are obligated to give us the information,” he said.
Mr Rawat and Mr Wairegi could be the first major casualties of the laws that the regulators have progressively tightened in the last five years to reduce the influence and power of major shareholders in firms.
The rules are also aimed at ensuring that only individuals of high integrity sit on the boards and executive suites of insurance firms and stipulate stiff penalties for those who do not make the cut.
In 2009, the law was changed to limit individual ownership of an insurance firm to a maximum of 25 per cent. Shareholding of directors and senior managers was also capped at the same level.
The Finance Bill 2012 made amendments to the Insurance Act that gave the IRA power to conduct random checks on owners and executives of insurance firms.
The insurance regulator also got authority to initiate the resignation of executives and directors who are bankrupt, or guilty of fraud and other malpractices in their businesses or personal affairs.
This law, which was later buttressed by last year’s amendment, pays special attention to individuals who hold more than a 10 per cent stake in an insurance company either directly or indirectly.
“The authority (IRA) shall, from time to time, carry out an assessment of the suitability of the person managing, controlling or having a significant ownership or significant beneficial interest in a person licensed under this Act,” the law says.
These provisions form the ground on which the IRA could make the unprecedented decision in the coming weeks.
Mr Makove said he had held a meeting with the Britam management to discuss this matter.
In addition to investigating the involvement of the two directors in the Ponzi scheme, the IRA is expected to interrogate reports in the Mauritian media that Mr Rawat tried to transfer Rs1.4 billion (Sh3.5 billion) from Kenya to the troubled bank.
The Bank of Mauritius, however, said that such a commitment was never communicated to it.
Mr Rawat was forced to cede a third of his stake in Britam to local investors in 1984 to comply with a government directive that Kenyans must have significant ownership in the company.
In 2006, Kenyan investors acquired an additional 30 per cent stake from BAI.
Mr Rawat remains the single-largest shareholder in Britam with a Sh10 billion stake.